The RRR reduction is beneficial to the fundamentals of the iron and steel industry [institutional review]

Pig iron output is close to the level of the same period last year. Last week, the daily output of 247 blast furnaces rebounded to 2.33 million tons per day from less than 2 million tons per day at the end of last year, down only 0.45 percent from the same period last year. The output of the five major steel products is also growing month-on-month, but it is still down nearly 6% from the same period last year.

Stocks continue to be distorted by the epidemic. Last week, the factory warehouse increased by 340000 tons, while the social warehouse decreased by 610000 tons, a total decrease of 270000 tons. The five major steel banks are down 4% from the same period last year, and we believe that inventory elimination lags behind due to the epidemic. The demand for watches has also dropped significantly. In the past four weeks, the five major steel watches need to be reduced by about 18%, of which the thread has dropped by 31%.

Profits rebounded slightly. Steel prices and raw material prices fluctuated slightly last week, and the profits of the five major steel products increased slightly. But profitability is still low so far this year.

Q1 profits are expected to fall by 50%. Steel industry profits fell 56.5% in the first two months of this year, rising month-on-month in March last year, and we expect month-on-month decline this year, so steel industry Q1 profits may fall by 50% or more from a year earlier.

We expect the market to have a better chance in the second quarter. We expect Q2 performance to increase significantly on a month-on-month basis, and the impact of the epidemic is likely to disappear in May, when construction is also likely to increase, superimposed by the peak season and the increase in foreign steel exports, steel profits are expected to recover and continue. However, due to the profit of ferrous metals and Calendering industry Q1 87.1 billion yuan and Q2 180 billion yuan in 2021, a month-on-month increase of 106%.

Steel valuations are still low. The industry's weighted PB is about 1 times, and according to 2021 performance estimates, the industry's PE is only about 8.5 times, and valuations are still low, taking into account dividend earnings. The central bank cut the reserve requirement by 0.25 percentage points, which is also good for the fundamentals of the steel industry.

It is suggested to pay attention to Baosteel, CITIC Special Steel, Shougang, Valin Iron and Steel, Nanjing Iron and Steel and so on.

Risk hints: the risk of aggravation of overseas outbreaks, the increased risk of imported cases, and the risk of economic policy changes.